Credit cards can be a convenient way to manage your finances – but they can also be expensive and risky. If you’re deciding whether or not a credit card is right for you, it’s best to compare some of the main benefits and disadvantages to help you make your decision. If you’re still unsure, we’ve created a list of who a credit card may be best suited for – and who should perhaps avoid one.
9 benefits of using a credit card
Some of the perks that come with paying on plastic include:
A credit card is safer than carrying cash. While there’s only a small chance of having lost or stolen cash returned, a credit card can quickly be cancelled if you lose your wallet. Most financial institutions also have security processes in place to protect you if your card has been lost or stolen, or if you suspect your account has been used for a fraudulent transaction. If you’re in any of these situations, make sure to contact your bank to report the issue as soon as possible.
A credit card can build your credit rating. Your credit card account details and payment history make up a key part of your credit profile. If you keep your account in good standing, this information will help you build up a good credit score, which could increase your chances of approval – and better interest rates – for other products such as car loans or a mortgage.
You can get interest-free days. If you pay your balance in full before the statement period ends, you can be rewarded with interest-free days on future purchases for a set period of time. This is also known as the interest-free grace period.
Earn rewards points when you spend. Rewards and travel credit cards allow you to earn points on every dollar you spend on eligible purchases, such as gas and groceries. Rewards credit cards let you earn points to redeem with the providers rewards program for perks like flights with partner airlines, merchandise from the providers store or cash back. Travel rewards credit cards, on the other hand, let you earn flights with specific airline loyalty programs.
You can request a chargeback if you’re unhappy with a product or service. You can request a chargeback through your credit card company if you have a dispute with a merchant – either in-store or online.
Credit cards work in any currency. Although foreign transaction fees usually apply, you can use your credit card overseas to make purchases in a foreign currency. There are even credit cards that waive fees for international purchases, which could be useful if you often shop at overseas online stores or you’re a frequent traveller.
Credit cards give you an emergency line of credit. Credit cards can be a financial safety net if you don’t have enough cash or savings to cover any unexpected costs that arise. Remember that you have to repay everything you owe, though.
Credit cards often have complimentary extras. Credit card features such as travel insurance, purchase protection and extended warranty insurance can save you money and give you peace of mind. Other value-adding features include complimentary flight offers, airport lounge passes and even early access to ticket sales.
You can consolidate debts and save money on existing balances.Balance transfer credit cards allow you to move existing high-interest debts to a new account with a low or 0% promotional interest rate. This can save you money on interest charges and help you pay down your debt faster.
7 disadvantages of using a credit card
The downsides of spending with a credit card include:
Paying high interest rates. If you carry a balance from month-to-month, you’ll pay interest charges. Purchase and cash advance interest rates can be as high as 22% APR, sometimes higher, so you can end up paying hundreds or even thousands more than you initially charged in interest if you’re unable to make repayments in full each month.
Credit damage. Missed credit card repayments and ongoing debts are recorded on your credit file and can impact your chances of getting a loan down the track, or getting a loan with a competitive interest rate.
Credit card fraud. There are a range of fraud schemes that target credit cards. While you can be compensated for illegal transactions on your account, dealing with credit card fraud can still be a time-consuming and stressful process.
Cash advance fees and rates. It’s very expensive to use your credit card to withdraw cash or make other “cash equivalent” transactions, such as buying foreign currency or gambling. Using a credit card for a cash withdrawal will attract a cash advance fee worth around 3% of the total transaction amount. It also typically attracts an interest rate of 19.99–21.99% right away. There is usually no interest-free period offered with a cash advance transaction.
Annual fees. While you can often get debit cards without annual fees, many credit cards have them. These can cost as little as $25 per year, or as much as $800 depending on the card that you choose. Generally, the more perks you want, the higher the cost of the card annually. If you want to avoid this charge, you can consider a no annual fee credit card — but make sure you look at all the other features to help find a card that works best for you.
Credit card surcharges. Businesses sometimes apply a service fee, also known as a convenience fee or a surcharge, when you pay with a credit card. This fee is usually around 0.5–3% of the total transaction cost and is charged for the convenience of paying with plastic. If you’re using your credit card in Canada, a merchant is legally supposed to notify you of the service fee before charging you.
Other fees can quickly add up. Depending on your card, you could be charged fees when you miss a payment, fees if you spend over your credit limit, fees for overseas transactions, balance transfer fees and even some rewards programs fees. If you carry a balance or don’t have access to interest-free days, there’s also a good chance interest will be applied to these charges.
Compare credit cards
If you’re ready to get a credit card, the next step is to pick one that best fits your needs. Below, you can search through different types of credit cards.
Quick comparison
Should I use a credit card?
Credit cards are suited to certain types of people, but not others. As well as considering the pros and cons, you may like to look at the following factors to help you decide if a credit card is right for you.
A credit card may suit you if you:
Are at least 18 years of age
Are a Canadian citizen or a permanent resident
Have a regular source of income
Regularly pay your bills on time
Want to keep certain transactions separate from your everyday bank account
Are looking to earn rewards for your spending
Need more flexible cashflow
Can afford to pay a little extra for the convenience
Often shop online
A credit card may not suit you if you:
Don’t meet the age or residency requirements
Often struggle to pay bills on time
Don’t have a regular source of income
Have poor spending habits
Can’t afford annual fees or interest charges
Have bad credit
Are happy to just use a debit card
Bottom line
If you’re thinking about getting a credit card, it’s important to consider the benefits and disadvantages they offer based on your own personal financial circumstances. As well as helping you decide whether a credit card is right for you, this process can help you narrow down the range and type of credit cards to compare so that you can find an option that works for you.
Adrienne Fuller is the former head of publishing at Finder US. With a decade of experience creating guides in finance and education, she aimed to deliver the accurate and transparent information she wished she had when she made some of life's important financial decisions. Adrienne has a BA from Colorado College and loves to hike with her two Catahoula dogs.
Find out how to cancel a credit card. Plus, learn about the impact cancelling a credit card could have on your credit score.
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